Project Finance Analysis and Modeling
Project Finance Analysis and Modeling
Project Finance Analysis and Modeling
G SOUMYA NIKITHA
Factors for financing are usually assessed according to the following 6 criteria:
You'll have to prove to lenders that the company is able to meet all of its financial obligations. The
company's financial structure should therefore show a healthy balance between loans and assets .
Security
Debt financing is usually secured against company assets, which should be sufficient to allow
lenders to cover their risk.
2. Explain in detail the revenue model for Solar PV Project, Residential
Building and Manufacturing Unit.
Revenue models often get conflated with revenue streams, probably because each is a single
revenue source. They are also confused with business models, of which revenue models are a
part. Revenue models help business owners determine how to manage their revenue streams and
are required to complete a business model.
A revenue model is a framework for determining how you manage revenue streams, and the
resources required for them, to generate revenue. It is vital for mapping out values: what value to
offer in the market, how it’s priced, and how it’s paid for by your customers.
Revenue model for Solar PV Project
Solar energy power plants (both utility and rooftop scale) have seen
tremendous amount of growth in last few years. With such growth in conjunction with the country’s
ambitious target of 100 GW, the market is to achieve new heights. However, acting as a hitch to
such target (from consumer’s perspective) may be selecting the correct investment plan (or more
commonly business model) by which a consumer can get desired return
Net metering:
Off grid captive consumption kind of power plants are set up where the
consumer has almost poor or no access to the grid. Such plants are set up with an intention to
either consume or store all the energy generated by the plant. This plant can replace the old age
Diesel Generator (DG) which could reduce both the cost and pollution however it would require a
storage source (battery) to be integrated with it for continuous supply of energy.
Revenue model for Residential Building
A Residential Building development model usually consists of two sections: Deal Summary and
Cash Flow Model. Within the Deal Summary, all important assumptions – including the schedule
(which lays out the timeline), property stats, development costs, financing assumptions, and sales
assumptions – are listed and used to calculate the economics and profitability of the project.
The Cash Flow Model begins with the revenue build up, monthly expenses, financing, and finally
levered free cash flows, NPV (net present value), and IRR (internal rate of return) of the project. In
the following sections, we will go through the key steps to building a well-organized real estate
development model.
The first step in building a real estate development model is to fill in the assumptions for schedule
and property stats. Here is a list of items which should be included:
Development Costs
For the next step in creating a real estate development model, we will input the assumptions for
development costs in terms of the total amount, cost per unit, and cost per square foot.
Development costs might include land cost, building costs, servicing, hard and soft contingency,
marketing, etc. Using the property stats filled in earlier, we can calculate all these numbers and
complete the development costs section. The section should look something like this:
Sales Assumptions
In sales assumptions, we will calculate the total revenue from this project. Suppose market
research is done and based on comparables, we believe that $500 per square foot is a realistic
starting point for the sales price. We will then use this as the driver for revenue. After calculating
sales (total, $/unit, $/SF), sales commissions (e.g., 50%), and warranty, we can figure out the net
proceeds from this project.
Financing Assumptions
For financing, there are three critical assumptions: loan to cost percentage, interest rate, and land
loan.
Before calculating the total loan amount, we need to figure out the total development cost amount.
Since we have not yet calculated the interest expense, we can link the cell to the cash flow model
for now and obtain the value once the cash flow model is filled in. The commissions are the same
as the sales commissions in the sales assumptions section. The total development costs can be
calculated as:
Total Development Cost = Land Cost + Development Cost + Sum of Interest and
Commissions Now we can fill in the rest of the financing assumptions.
The Max Loan Amount obtained for this project = Total Development Cost x Loan to Cost
Percentage
ECB raised directly by GoI as sovereign debt. GoI has in the past pushed public sector utilities
(PSUs) to borrow from external markets for fiscal and BoP support, and foreign portfolio investors
(FPIs) are allowed to buy domestic government bonds denominated in rupees. But it has so far
avoided borrowing directly on its own books from international financial markets. The budget
announcement marks a structural shift in policy.
Another former RBI governor, C Rangarajan, doesn’t think so — and for good reasons. “The
proposal… does not appear to be correct. This essentially means the exchange risk is borne by
GoI, unlike the situation in which foreign investors are allowed to invest in government bonds in
rupees,” he wrote in ET on the budget, adding, “Second, there is certainly no need for government
to borrow as the foreign inflows are adequate.”
Global interest rates are at historic lows. This has intensified what former chair of the US Federal
Reserve Ben Bernanke called a ‘global savings glut’. India, with a deficit of savings over
investment, could tap into this glut. The cost of hedging against forex riskwould be countervailed
by the saving in the coupon rate.
FACTOR’s if the financing bank is from abroad and the debt is in US$ but revenue is in INR.
1) Direct borrowing by the sovereign is always cheaper than for any other entity. As long as the
policy shift simply means that overall ECB limits remain unchanged, with GoI borrowing more and
the corporates less in international financial markets, there would be net welfare gains for the
economy.
2) The sovereign is the best credit in the country. As such, sovereign bonds set the lowest
possible benchmark for Indian borrowers in international financial markets.
3) Instead of relying on the sovereign bond yields of other similarly rated developing countries,
they would now borrow at spreads above Indian sovereign bonds, controlling for tenure of the loan
and credit rating. GoI can lower the yields on its own sovereign bonds through good
macroeconomic management.
4) India has a huge infrastructure deficit. Global experience is that most of this investment would
need to come directly or indirectly from government. Private enterprise can play only a marginal
role, in view of the higher risks, lower returns and longer gestation periods of the underlying
investment. Such investments generate large externalities, indirectly benefitting the larger
economy much more than the investor directly. As the case of China illustrates, first-class
infrastructure lowers the cost of overheads, making the economy more efficient, productive and
hence more internationally competitive.